Brazilian government denies to pay $14 billion to Petrobras

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FILE PHOTO: The logo of Brazil's state-run oil company Petrobras is pictured next to a national flag at a gas station in Natal, Brazil November 19, 2018. REUTERS/Paulo Whitaker

SAO PAULO (Reuters) - Brazil’s Economy Ministry denied that the government would pay $14 billion to state-controlled oil company Petroleo Brasileiro SA to settle a dispute over an oil-producing zone off the Brazilian coast known as the transfer-of-rights area.

The ministry told Reuters in a statement the figure, reported on Monday by the Valor Economico newspaper, was only one of several proposals passed to the transition team of President Jair Bolsonaro by his predecessor Michel Temer. The final amount has not yet been decided, the ministry said.

The report that $14 billion had been agreed to settle the dispute helped boost the common shares of Petrobras, as the company is known, as much as 5.5 percent. Common shares closed Monday 3.3 percent up and preferred rose 1.6 percent, against a 0.15 percent decline in the benchmark Bovespa index.

Settling on a figure would be a major step forward in the long-running dispute and help Petrobras cut its sizeable net debt, which stood at $73 billion as of the third quarter.

At times during negotiations, Petrobras has claimed that it is owed as much as $30 billion, while parts of the government has said Petrobras owed money to the state.

On Wednesday, Mines and Energy Minister Bento Albuquerque said he expected the dispute to be resolved within 100 days, and that Petrobras was the creditor in the dispute. The amount Petrobras was owed and the form of payment was still under discussion, he added.

A dispute over the area in question dates back to 2010, when the Brazilian government granted Petrobras the right to extract 5 billion barrels of oil and gas in the offshore Santos Basin. The government received additional shares in Petrobras in return, based on oil prices at the time.

The volume of oil in the area is now estimated to be much larger, however, and the cash-strapped government wants to sell the rights to extract the extra oil. The choice reserves cannot be auctioned until the government and Petrobras resolve a dispute over the 2010 transaction.

Among other things, the contract stipulated that costs would be reviewed after the area was declared commercially viable in 2014, which has led to years of sparring as oil prices have fluctuated.